Economic Insiders: Spending Cuts Not the Most Urgent Priority

N2K: The Great Spending Debate

EDITOR'S NOTE: This is the debut of National Journal’s Economic Insiders Poll, a periodic poll of veteran experts on the policy and political dynamics of key issues in the economy. It is the latest in a series of new Insiders Polls that will focus on specific areas ranging from economic policy to energy, the environment, and national security.

Only one of 44 Economic Insiders said that immediate cuts in discretionary spending were the most urgent priority for the U.S. economy—a result that contradicts the most prominent element of Republicans' economic policy.

National Journal asked more than 50 economic policy experts from across the political spectrum to choose which of five policy prescriptions they considered most urgent. The options were immediate spending cuts, agreement on a credible deficit-reduction plan for the next five to 10 years, substantial infrastructure investment, deregulation, and fundamental tax reform.

All responses are kept anonymous, to encourage candor. Republicans include former economic advisers to President George W. Bush like R. Glenn Hubbard, Keith Hennessey, and Douglas Holtz-Eakin. Democratic or liberal insiders include Michael Barr, a former top Treasury official under President Obama; Alice Rivlin of the Brookings Institution, and Charlene Barshefsky, former U.S. trade representative under President Clinton.

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By far the largest number of Insiders, about half, said the economy's most urgent need was agreement on a credible deficit-reduction plan. A little more than a quarter pointed to the need for infrastructure investment, and another one-fifth put the top priority on corporate tax reform.

In a separate question, insiders were asked about the risk that events in the Middle East, Japan, or other parts of world could derail the economy. On average, the Insiders rated that risk fairly low at 3.6 on a scale from zero (no risk) to 10 (virtual certainty).

Here are the results in more detail:

What do you think the U.S. economy needs most urgently?

44 votes

Immediate cuts in discretionary government spending2%

Agreement on credible deficit-reduction plan for next 5-10 years48%

Substantial infrastructure investment27%

Deregulation5%

Fundamental tax reform18%

The responses paint a starkly different picture of economic policy priorities from the one currently dominating Capitol Hill, where Republicans have successfully focused the immediate debate on slashing discretionary spending. GOP consensus has crystallized around a plan to cut spending by $61 billion this fiscal year. Even President Obama has jumped on the spending-cut bandwagon, though he has proposed much smaller cuts than those proposed by the GOP.

The Economic Insiders showed far less interest in immediate spending cuts, and some made it clear they thought such cuts were a bad idea.

"Cuts in federal spending are extremely premature," wrote one respondent. "With the unemployment rate well above 8 percent for two years now, expected to stay above 8 percent for another two years, and interest rates near zero, the debate should be around what substantial additional stimulus spending we are going to undertake to create jobs."

Some of those who picked medium-term deficit reduction as their top priority pointed to the effects of assuaging market fears and the dangers of a Greek-style sovereign-debt crisis. "Waiting until the markets force the issue, as in Europe, will make it much more costly and difficult to make sensible long-term choices," one wrote.

As a group, the economic insiders were less enthusiastic about increases in infrastructure spending, which is one of Obama's goals. And they felt overhauling the U.S. tax code is an even less urgent priority, which has become popular among Democrats and Republicans alike.

On the whole, the Insiders were confident that the U.S. economic recovery would continue despite turmoil in other parts of the world.

Asked to rate the odds that Middle East unrest or the tsunami in Japan might stall the economic recovery, the median response was a 3 on a scale of 0-10 and the mean response was 3.6. Some respondents said they did harbor fears about such shocks, but said the shocks were not nearly enough to induce another recession. A few also singled out Europe as a source of concern.

On a scale of zero to 10, with zero being no risk at all and 10 being a near certainty, how worried are you that external shocks in Japan, the Middle East, or other parts of the world could stall the U.S. economic recovery and trigger another recession?

Average: 3.6 (44 votes)

1 to 355%

4 to 639%

7 to 107%

National Journal’s Economic Insiders Poll is a periodic survey of economic policy experts. They include: